U.S. Consumer Sentiment Shows Substantial Deterioration In August

Consumer sentiment in the U.S. has seen a significant deterioration in the month of August, according to a preliminary report released by the University of Michigan on Friday.

The report said the consumer sentiment index tumbled to 92.1 in August after inching up to 98.4 in July. Economists had expected the index to dip to 97.2.

With the much steeper than expected drop, the consumer sentiment index slumped to its lowest level since hitting 91.2 in January.

The sharp pullback by the headline index came as the current economic conditions index slid to 107.4 in August from 110.7 in July, hitting its lowest level since late 2016.

The index of consumer expectations showed an even more substantial decrease, plunging to 82.3 in August from 90.5 in July.

The deterioration in consumer sentiment came amid concerns about the proposed increase in tariffs on Chinese imports as well as the reasoning behind the Federal Reserve's interest rate cut.

"The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession," said Surveys of Consumers chief economist Richard Curtin.

He added, "Consumers concluded, following the Fed's lead, that they may need to reduce spending in anticipation of a potential recession."

Curtin said consumers are likely to reduce their pace of spending but still help keep the economy out of recession at least through mid-2020.

On the inflation front, the report said one-year inflation expectations inched up to 2.7 percent in August from 2.6 percent in July, while five-year inflation expectations ticked up to 2.6 percent from 2.5 percent.